The Law of Supply states that all else being equal, as the price of a good or service increases, the quantity supplied of this good or service increases. As the price decreases, so does the quantity supplied to the market. The price of a good or service and the quantity supplied of that good or service are directly, or positively, related.
Economists use the Latin term ceteris paribus, meaning “all else equal,” to indicate that they are only considering a change in one variable.
The Law of Supply only considers how quantity supplied responds to a change in price. Firms are willing to produce more of a good or service because the producer would like to sell as much of a product as possible at the highest price.
Quantity Supplied is the quantity of a good or service that firms are willing to sell at a particular price over a given period of time, all else being equal. Quantity supplied is determined for a specific good or service, market, and time period. For example, if a certain car company built cars for sale in the United States, it would determine how many cars it would be willing to sell in that market at various prices. A change in price leads to a change in quantity supplied, and is shown by a movement along a given supply curve.
Move the slider to change the price of the truck, and watch how the number produced each year changes in response.
Trucks Produced per Year
A Supply Schedule is a table that indicates the quantity supplied of a particular good at various prices. By organizing data in a table, the main point of the law of supply is shown. Higher prices cause quantity supplied to increase, all else being equal.
Add each option for the truck’s price to the supply schedule by moving the slider and pushing “add to schedule.”
| Price of Truck | Quantity Produced per year |
| $10,000 | 0,000 |
| $15,000 | 10,000 |
| $20,000 | 20,000 |
| $25,000 | 30,000 |
| $30,000 | 40,000 |
| $35,000 | 50,000 |
Trucks Produced per Year
A Supply Curve is a graphical representation of the supply schedule, showing the quantity supplied at each price. By convention, the price is graphed on the vertical axis, and the quantity supplied is graphed on the horizontal axis.
Add each option for the truck’s price to the graph by moving the slider and pushing “add to graph.”
Demand
Because it is impractical to obtain data for every price at which goods or services are offered to the market, a curve is drawn between known points. A supply curve is not always curved; in this example, it is a straight line.
Using the supply curve, it is possible to find the amount of a good or service that the market will supply at any given price. The point on the curve at the same height as a given price (P) is directly above the quantity (Q) of the good or service that the market will supply at that price.
Did You Get It?
What quantity of trucks will be supplied at a price of $22,500?
Demand
Wrap Up
The tendency for the price and the quantity supplied to move in the same direction is known as the law of supply.
For more information on the law of supply, read Chapter 5, Module 13 of Explorations in Economics and study the Module 13 Review and Assessment. You can also test yourself with the Module 13 online quiz here on the BCS.